Preferred Redeemable Increased Dividend Equity Security - PRIDES

You could eat a bite of apple pie. Or you could fake the taste of apple pie using jelly beans (they suggest popping two green apple and one cinnamon jelly bean at the same time; it tastes close enough to apple pie). Call the jelly bean version a synthetic pie.

Which brings us to PRIDES (preferred redeemable increased dividend equity securities). These financial instruments represent synthetic versions of mandatory convertible securities. They allow holders to earn some interest in the meantime, while converting the investment to common stock down the road.

PRIDES work like this: you put down a deposit. You earn interest on that deposit, while simultaneously receiving a forward contract to purchase common stock of the company involved. You get the interest income from the time of purchase until the mandatory conversion date. At that point, the futures contract reaches its expiration and you are obligated to purchase shares of the company's stock.